Decentralized Finance (DeFI) stormed onto the scene mid 2020 in what was to be known as the “DeFi Summer.” Decentralized finance is the permissionless, trustless system of finance which doesn’t rely on middlemen to conduct financial transactions. Instead, smart contracts take their place, ensuring fairness and proper execution with code rather than bankers. Fast forward to now, DeFi has come of age with multiple mature decentralized exchanges (DEXs), automated market makers (AMMs), and decentralized lenders. Opportunities abound to farm dozens of tokens and earn yields unheard of in traditional finance. Most of these are in the Ethereum ecosystem and has led to a lot of competition for block space, which has resulted in extremely high gas fees (the cost to perform a transaction on the Ethereum blockchain).
Enter Polygon network.
According to Polygon, “Polygon is a protocol and a framework for building and connecting Ethereum-compatible blockchain networks. Aggregating scalable solutions on Ethereum supporting a multi-chain Ethereum ecosystem.”
Polygon is a Layer 2 sidechain built on Ethereum offering virtually zero cent gas fees, rather than the hundreds of dollars in transaction fees you’ll find on Ethereum proper during peak times. Formerly Matic Network, Polygon is offering bonus rewards in the form of MATIC, the native coin of Polygon (much the same as ETH is the native coin of Ethereum), on Aave, a decentralized lending protocol. You’ll receive MATIC rewards, in addition to native yields, when you deposit MATIC, DAI, USDC, USDT, WBTC, WETH, or AAVE tokens. If you borrow from Aave, you also receive MATIC rewards. There’s still an APR on the coins or tokens borrowed, but the MATIC rewards are almost always more than the interest owed on the loan, so, in effect, you can borrow stablecoins for free and exchange them for whichever tokens you wish. This part is due to Polygon’s desire to lure investors and DeFi degenerates into the Polygon ecosystem. They’re offering significant MATIC rewards in two phases. The first one began April 13, 2021 and will go until July 14, 2021, at which point the rewards will be roughly three quarters less after July 14th ongoing to 2022.
Within the last week, SushiSwap, a DEX/AMM, announced interoperability with Polygon. Together with Aave, this added the second and third largest decentralized applications (dApps), by revenue, to their network, which had the effect of additional security and legitimacy.
Now, on to the part you’ve been waiting for: how to access the Polygon network and start farming these tokens. This assumes you have some type of cryptocurrency, and are able to transfer it (so not CashApp, Robinhood, PayPal), but you may not have a wallet that can be used in the Polygon ecosystem.
First, you need a web3 wallet. MetaMask is the most popular one, and it’s also the one I use personally. Go to MetaMask.io and hit that “Download” button to download the web browser extension. There’s a mobile app, too, but the browser extension is a lot more user-friendly.
Once you’ve got that installed and a new account set up, you can transfer coins or tokens to your new MetaMask account to use in the Polygon ecosystem. It’ll look like this and if you click that “0x…” (your address and ID number), it’ll copy the address to paste for easy transfer of your crypto.
Once you’ve got funds in your MetaMask account, they’ll be on the Ethereum mainnet, and you’ll be ready to bridge assets to Polygon. First, set up a custom network by clicking the “Ethereum Mainnet” button with the green circle at the top and choosing “Custom RPC” at the bottom. It’ll ask you for the following information, which you can enter. They rebranded from Matic to Polygon, so you can either keep it Matic Mainnet, like this, or change it to Polygon.
Next, go to the Polygon bridge to start the transfer. It requires two separate contracts, one to approve spending your tokens and another to complete the deposit. Depending on Ethereum gas prices, it can be pretty expensive. Gas was around 178 gwei at the time this screenshot was taken.
This can take a while, up to half an hour at peak times, but can be fairly quick at around 7 to 10 minutes.
Once your assets are on the Polygon network, you’re ready to earn some MATIC and SUSHI rewards. You can skip this part with Aave if you just want to use SushiSwap to earn your MATIC/SUSHI rewards. Otherwise, this is how to earn MATIC rewards by using Aave’s deposit and borrowing protocols, which is an incentive to provide liquidity on the Polygon network. Make sure “AAVE Market” with the Polygon symbol is active. The other two are on the Ethereum blockchain.
You’ll see the variable APY they’re offering you paid in the coin you deposit, along with the APR in MATIC rewards you’ll earn. You’ll see the same thing on the “Borrow” tab, except this time the MATIC APR is an incentive to borrow, and in most cases it ends up being a free loan, since the MATIC rate is higher than the native APY. The strategy here is to deposit your assets, earning native and MATIC rewards, then using those deposits as collateral, borrowing stablecoins of your choosing, and swapping them on SushiSwap.
When you’re ready, head over to SushiSwap and exchange your stablecoins. The highest yielding pool is WMATIC-WETH. If you don’t have them already, exchange half of your stablecoins for MATIC (not WMATIC), and the other half for WETH (not ETH, I know it’s confusing). Once you’ve got those tokens, hit that “Liquidity” tab right next to “Swap” right above the purplish tutorial bar, or go to the “Pool” tab at the top. They’ll take you to the same place.
Add in your tokens, approve, and deposit them. This will give you a Liquidity Pool token (LP) to deposit in the farm. Now, take that LP token to the “Yield” tab at the top.
Your wallet balance on the left will have the balance of your Sushi Liquidity Pool (SLP) tokens you just received from depositing MATIC and WETH. Hit “Max” and then “Stake” to stake them in the farm. Once it’s staked, all you have to do is periodically come to harvest your yield, which will be in MATIC and SUSHI.
Now you’ll be receiving passive rewards in MATIC from Aave, and both MATIC and Sushi from SushiSwap. You’ll also receive a percentage of the fees from transactions involving the tokens in your pool.
Good luck!
Not financial or tax advice. This publication is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This is not tax advice. Talk to your accountant. Do your own research.
Originally published at https://redefine.substack.com.
